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A Band-Aid Solution to Economic Development: The False Promise of ‘Fair Trade’

By David Fields

The process of economic development elicits many thoughts, analyses, speculations, suggestions, descriptions, prescriptions, and conclusions. Nevertheless, it invokes an imagined reality that is fundamentally progressive. As a social construction, economic development entails a commitment to the idea that we as human beings, in order to maximize our human potential, can and should try to change the world for the better. That is, it should be an attempt to reduce vast inequalities, social injustices, and hegemonic forces that intrinsically develop extensive imbalances of rights, privileges, and responsibilities across the world’s population, and moreover deny many a condition of life regarded as materially, culturally, spiritually, and symbolically superior.

This paper is an exploration of the role of fair trade as an effective developmental initiative in promoting economic self-sufficiency for marginalized producers of the periphery. From Sen and Nussbaum’s ‘capabilities approach’ for evaluating human well-being, I focus on the foundation, structure, and influence of fair trade as an alternative development model and analyze the model within the UNICEF empowerment framework. The UNICEF framework is based on the premise that empowerment involves five levels: 1) Welfare, 2) Access, 3) Conscientization, 4) Participation, and 5) Control. From this discussion, I conclude that, in the long run, fair trade fails to be a sustainable substitute for the neoliberal orthodoxy that currently dominates the institutional mechanisms addressing global poverty.

Background

Fair trade can be described as the new globalization that seeks to reshape past and present patterns of international trade and processes of the global economy that have egregiously undermined social conditions around the world.[1] Through counter hegemonic networks and a strategy of grassroots activism, fair trade is determined to reverse the race to the bottom that neoliberalism has nurtured. Hence, it represents the strategy to subvert commodity fetishism and redirect the transformative powers of unequal international market relations that act as a vehicle of exploitation toward fostering greater social equity on a global scale.

With a strategy of trade, not aid, the intent is to engage vulnerable, marginalized, destitute workers and producers globally by enhancing their capability to survive through direct sales, better prices, stable market links, and various egalitarian cooperatives, associations & organizations, and a commitment to the equality of material, political, economic, and ideological resources that altogether institutionalize a social norm of fairness in which each and every individual has a right to a just standard of living.[2]Through ethical consumerism and solidarity of core consumers and periphery producers, fair trade ventures to challenge the imperatives of competition, accumulation, and profit maximization that engender insecurity

Fair trade has historically been associated with various initiatives of Alternative Trading Organizations (ATOs) to radically transform global capitalism, which maintains abject poverty for many of the world’s population. ATOs became prominent with the rise of Dependency and World Systems theory in the late 1960s and 1970s by noted social theorists Andre Gunder Frank and Immanuel Wallerstein, who reflected on how the international social system under capitalism brings about a redistribution of resources from the periphery to the core, i.e. the ‘industrialized democratic’ part of the world, the core,economically exploits ‘poor, raw materials-exporting, undemocratic, less developed’ countries, theperiphery, through the intransigent world market. It was only in the 1980s with the rise of multi-national corporations and the structural changes of global financial and administrative institutions like the IMF, World Bank, WTO, and the Washington Consensus did the fair trade movement become a market-driven, social justice campaign.[3]

Welfare/Access

The welfare/access level of the UNICEF model refers to the extent to which basic needs like food, shelter, health, and protection/security and access to vital resources are met. The most direct benefit to marginalized producers involved in fair trade is the guaranteed price floor and social premiums regardless of market volatility. This price stability and the promise of long-term contracts offered through umbrella organizations significantly channels essential funds to producers.

Anthropologist, Karla Utting-Chamorro, in her analysis of cooperatives in Nicaragua, noted that fair trade offered marginalized producers the ability to use electricity instead of fuel wood for energy, foster physical improvements in homes to ameliorate deteriorating living spaces, pay for children’s education, purchase vehicles for transportation, and install telephones for communication; and through the purchase of organic fertilizers and other necessary inputs, the conditioning of their farms vastly improved to not only provide the adequate products for the alternative market but satisfy the requisite levels of food production for sustainability and better nutrition levels.[4] The author mentions that according to one farmer:

Our lives have changed a lot since becoming involved with SOPPEXCCA, we feel good because we never had enough money for the house and farm. Now [. . .] we are getting a higher price for our coffee, [and] we can afford things we could not afford before. [5]

Sara Lyon, another anthropologist, in her analysis of cooperatives in Mayan communities of Guatemala, concluded that price stability provided vital additional cash income to maximize landholdings in order to expand production of fair trade coffee for Northern markets. The opportunity to reinvigorate traditional agriculture that for centuries was a livelihood strategy for Mayan communities ensures that subsistence agricultural production can be sustained to provide cooperative families indispensable nutritional food intake. Lyon explicates that, in a survey among cooperative members, 64 percent reported their milpa crops were consumed solely within the household and that there was even a surplus that could be resold to regional buyers of nearby cities to provide their populations with needful food supplies.[6]

In addition, political scientist Gavin Fridell notes that a fair trade cooperative in Oaxaca, Mexico, with a membership of 2,500 families, has been able to provide members with significant higher incomes and better access to education, health services, and technology and transportation facilities-all of which has improved the capacity to withstand extreme poverty, malnutrition, environmental degradation, and unsafe working conditions, and above all has enhanced the ability to satisfactorily withstand the volatile international market for primary commodities.[7]

Historically, the destitute of the periphery have had limited access to credit. This has significantly lowered the income-generating capacity of the meager assets that the peripheral indigent possesses. Fortunately, as Lyon points out, participation in fair trade cooperatives which improve education levels and fosters a modicum of sustainability enhances the legitimacy of producer organizations to gain access to national banks and international lenders to strengthen ongoing success.[8] Interestingly enough, it has fostered cooperative solvency of credit to increase asset endowments.[9] Producer organizations use loans to establish micro-lending programs to garner high technological inputs that improve production quality and thereby strengthen the producer organization’s market potential. [10]

Price stability and social premiums guarantee fair trade producers partial protection from raw material commodity crises in international markets that have ravaged their societies. Loraine Ronchi, of the Poverty Research Unit at University of Sussex, pointed out that “in light of the coffee crisis of the early 1990s, fair trade can be said to have accomplished its goal of improving the returns to small producers and positively affecting their quality of life and the health of the organizations that represent them locally, nationally and beyond”.[11]

Although price stability and social premiums through fair trade offers significant gains in welfare for a marginalized periphery, embedded in fair trade is what economists Diane Elson and Nilufer Cagatay describe as the ‘commodification bias,’ whereas coordination of social citizenship rights to state entitlements of health, education, care, nutrition, etc. are abandoned. It is estimated that the cost to producer organizations working through Fair Trade to export just one container coffee can reach US$15,000, which includes accumulating adequate machinery and obtaining fair trade certification. [12]

In this sense, producer earnings only enable the marginalized to maintain adequate subsistence levels, but do not offer the freedom to move beyond the confines of primary production.[13] Adding to this, there is a significant gap between the price paid to producers and the price paid by ethical consumers. Importers are quick to assume costs associated with packaging, marketing, and transportation; but, despite an established price floor for fair trade commodities, producers have seen vast fluctuations in living costs and, after having been subjected to decades of ravage inflation, they have only seen fair trade prices minimally adjusted.[14]

Moreover, the scale and structure of the fair trade market is not universally extensive so to generate a powerful force to counteract possible market failures. For instance, since cooperative welfare through fair trade depends on core consumption, falls in aggregate demand have profound implications for the organization of production in fair trade periphery cooperatives. In periods of global economic crises, for instance, fair trade producers will likely be forced back into precarious situations, where they are confined to low paid, exploitive, insecure forms of work in which the capability to meet basic needs is far from reach.

For example, fair trade coffee supply in Latin America, Asia, and Africa in 2002 was seven times greater than the quantity exported through fair trade channels.[15] The excess supply was not purchased by sufficient ethical demand. This forced cooperatives unaccustomed to creative destruction and maximizing economies of scale to differentiate. The direction has been towards the marketing of organic coffee, which is in high demand, but fair trade determines that it must require dual certification to ensure transparency. The certification process, however, is more expensive and demanding given the necessity to acquire vast technical assistance and know-how to meet predetermined organic production norms. With increased costs and sophistication in a relatively unsophisticated market, the result led to increased competition among producer organizations for a limited number of fair trade contracts, inevitably reinforcing marginalization to which fair trade was intended to amend.

Lastly, the access to credit should not be seen as a remarkable step in the right direction. The micro-lending programs established within producer organizations to enhance market potential still rely on a financial structure in which the hidden objective is the security of economic rents, in which speculation is the norm. Producers find it difficult to repay loans due to usurious interest rates. This significantly reduces the capability of advancing the income-generating capacity to enhance the fair trade market. Producer cooperatives end up using half of the fair trade price to pay past debts and, until such debt is repaid, producers will never receive what constitutes as the expected fair price.[16] The so-called ‘alternative transformative force’ of the fair trade market therefore acts in sync with the conventional market in which there are winners and, for certain, there are losers.

Conscientization

The successful drive towards peripheral empowerment very much depends on the level of awareness on the extent of the weak position of marginalized producers. Fair trade seeks to accomplish this task by effectively building the market relationship with consumers of the core altruistically by engaging in conscientious consumption, and thus obtain the socially reputable knowledge of having been involved in the assistance of a distant, destitute stranger. [17] In this sense, fair trade consumers of the core, with their purchasing power, express ethical assessments of favorable business and government practice. They lend legitimacy to producer organizations of fair trade since its members can acknowledge that each has a stake in gaining the respect and attention of their plight from consumers with a social conscience. This relationship creates a connection to channel consumer anti-globalization sentiment into action and develops opportunities for producers to work together and reproduce long-term traditions of cooperation, reciprocity, and mutual aid.[18]

Ethical consumerism has bolstered fair trade to deliver on its promise of providing broad social benefits. It has grown into a significant force in the global economy with annual sales in the US valued at US$ 1.6 billion.[19] The UK ethical market is estimated at US$ 5.6 billon![20] Such growth has also driven multinational corporations to see fair trade as a ‘voluntarist’ alternative to state regulation, and, as such, has moved fair trade from “being a radical solidarity movement to a mainstream trend in retail.”[21]

Fair trade is perhaps better understood as a consumer-dependent movement for change rather than a consumer led movement. [22] This is an example of what Anthony Giddens describes as life politics versus emancipatory politics, which stem from the notion that personal lifestyles are “more or less integrated by a set of practices which an individual embraces, not only because such practices fulfill utilitarian needs, but because they give material form to a particular narrative of self identity.” [23] Life politics is a politics of choice of lifestyle in which political decisions flow from the ability to self-actualize while constructing a morally justifiable form of meaning in the context of global interdependence. [24]

Emancipatory politics, on the other hand, centers on addressing inequitable distribution of power and resources in the context of global interdependence by actively being involved in the reduction or elimination of exploitation, inequality, and oppression. The problem which arises is that fair trade consumers are engaging in life politics, not emancipatory politics, since the social concern is, more-or-less, a reflection of individual identity, rather than a force for global social restructuring. As such, fair trade is a social form of conspicuous consumption, while their producer counterparts continuously struggle against political and economic inequalities. In essence, it can be concluded that such disjuncture elucidates the concerns raised by critics of fair trade who maintain that the abstract exchange relation reinforces global inequalities, reenacts colonial trade relationships, and moreover relegates the marginalized producers to the tradition of being placed in the unjust subservient position to dominant economic powers in the capitalist world economy.

The extent to which fair trade ‘re-embeds’ producer-consumer relationships is suspect. It’s nothing more than charity at a distance, and moreover egregiously reinforces demonstrations of otherness, not interconnection based on common traits and common social characteristics. Through fair trade, cosmopolitan consumers make visible categorical differences between the ‘consuming self’ and the ‘producing other.’ [25] The consumers and producers do not enjoy any actual proximate interaction. As such, conscientization through ethical consumption is nothing more than a largely symbolic form of social interaction engendered by branding and commercialism that altogether constitutes a form of cultural narcissism.

Participation

At the level of participation, fair trade producers should be able to take part or have a share in resource and power allocation. Fair trade, in theory, is founded on the formation of equitable partnerships and decision-making processes. Through democratic producer associations administered by umbrella organizations, fair trade has strengthened the organizational capacity of producers to establish a group identity and develop leadership skills which assure a significant degree of accountability and monitoring in the production process. The ethos of service and reciprocity through involvement in micro-level cooperative decision-making boards facilitate the promotion of social development. Monthly meetings are held among cooperative members to determine what social projects are most needed in each community, in order to provide the opportunity to learn about fair trade issues and new cultivation methods.[26] In fact, democratic producer organizations have even expanded the space for marginalized workers to collectively engage apathetic national governments.[27]

The problem is that such decision-making processes administered by umbrella fair trade organizations are characterized by a pyramid power structure, in which the top does not communicate with the bottom.[28] Fair trade is a regime in which the rules are established by decisions made by upper-level technocrats. Administrative policies exert a power on the marginalized in which they are essentially forced to accept unintended norms. The producers become nothing more than passive suppliers of product.[29] What this elucidates is that fair trade is more of a reformist intervention, rather than a partnership. It means lack of effective participation on behalf of the producers themselves, which essentially lessens fair trade’s capacity of capturing the priorities and values of intended beneficiaries.[30]

Although fair trade has prioritized gender equality, in practice this mandate is quite underdeveloped as well. Women’s projects are largely focused on activities outside the agricultural sector and moreover focus on maintaining subsistence farming to meet household consumption levels. Women producers’ organizational efforts are hampered by the lack of cooperative management and business training to engender plurality. Since many of the well-established cooperatives have emerged from generations of patriarchal relations, fair trade at the immediate moment does not seem to adequately answer the needs of female producers.[31] Machismo still prevails in many communities, restricting the participation of women in the process, and there is a strong need of training activities at the community international level in order to encourage the participation of more women producers in the fair trade movement.

Control

The level of control refers to the capability of direct influence over events so that overall interests of the community are protected. Empowerment is only real when the marginalized have attained sufficient control over themselves, their resources, organization production, and decision-making, be it at home or in the public arena. Since fair trade, however, is an overly ambitious band-aid strategy of enhancing the ability of the disadvantaged to survive and compete in the chaotic world economy, it only minimally promotes such forms of social agency. The world economy is implicitly and explicitly unfair, violent, vicious, and fraudulent. Any market-driven initiative that strives to work within the confines of this structure to reformulate the transformative powers that be, in order to coordinate a new globalization in the best interest of all producers and consumers, will be restricted and limited. While fair trade is claimed to be a ‘movement,’ it quite clearly is not. A ‘movement’ relies on interactive solidarity and mobilization. It is not based on unadorned consumer sovereignty.

Conclusion

Based on the above analysis, fair trade does not confront and challenge the overarching structure that generates relative and absolute poverty and inequality. Fair trade is, unfortunately, nothing more than a band-aid solution. It does not demand strong international market regulation that establishes a true alternative trading system in which the imperatives of capitalism that destroy the lives of so many are contained. It clearly does not offer a well structured plan to provide the unfortunate of this anarchic world a condition of life regarded as materially, culturally, spiritually, and symbolically superior. Fair trade is not an effective developmental model. Discouragingly, a global imbalance of economic and social welfare will continue to be ubiquitous.